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What is the main caution in treating real GDP growth as growth in living standards?

Answer and explanation

Correct answer: It does not automatically reflect income distribution and population change

Real GDP measures the volume of final goods and services using constant prices, so it removes much of the effect of inflation. However, total real GDP does not show how output is distributed, how population has changed, or whether the average person is better off. Per-capita real GDP and distributional, social and environmental indicators are therefore needed. Option A is correct; the other statements contradict what GDP measures.

Related tags

Real GdpGdp And WelfareLiving StandardsIncome DistributionNational Income And Related AggregatesEconomicsClass 11 Mcq

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